Wednesday, July 30, 2014

Hiring great people is always hard. Many entrepreneurs I know look for a magic bullet or short cut hack for recruiting. The reality is that recruiting is a numbers game. Ultimately, you just need to work through enough people to make it work. The below is for an early stage company just getting off the ground (e.g. 2 to 8 people).

1. Timelines.
Once, you as a founder, start spending 30-50% of your time on recruiting, it will still take 4-8 weeks to build up an initial pipeline of people for your company. Plan on this ramp when thinking through your hiring timeline and plan. Building a pipeline and closing the first candidates takes time.

2. Numbers Game.
Drawing on your personal network is often the most efficient way to hire people. In some cases you have worked with a candidate so know they are a quality hire. Candidates are also more likely to join your startup if they know and trust you. Barring pre-existing relationships, there is often no way to get around interviewing large numbers of people to fill a role.

We hired a designer at my first startup by grinding through candidates. Our first attempt was to go through our direct personal networks, but that did not yield anyone. As a next step, we made a list of companies that had the following characteristics for their design teams: (a) technical designers (e.g. could write HTML/CSS), (b) had good UI design in general, (c) designers not overly specialized (e.g. designers who could do a bit of user experience, visual design, etc.).

Based on this we ended up with 5 companies. I went through LinkedIn and combed through literally every designer who worked at those companies. I reviewed >100 available portfolios, prioritized the people, and then reached out to every single person who made the cut. After 6 weeks we closed our designer, who was pretty spectacular. It took a lot of repetitive, detailed work to make this happen.

3. Drop Poor Leads Quickly.
If you do not have a lot of experience hiring, you will be tempted to meet every candidate in person for "coffee". This is a big waste of time and usually can cost you anywhere from 1 to 2 hours including travel time, waiting in line together for drinks, small talk, etc. I have not found meeting people for coffee in any way increase the likelihood of them interviewing versus a quick phone call.

Instead, as a first step do a quick 10-15 minute phone screen. If the candidate is a poor fit - you only spent 10 minutes on them. This save both you and them time. If they are a good fit, you can have the call run longer or coordinate on the phone for a follow up meeting (be it coffee or a full interview loop, preferably the latter).

There are a number of signs a candidate is not serious about leaving their company (or, alternatively, are not really interested in your company). You need to identify these people quickly and drop them from your pipeline so they do not waste your time. A simple example is candidates who are unwilling to talk by phone during their current work day. This is a clear sign they are not really looking for their next gig, even if they claim they are over email.

The main reasons to drop candidates are:
-Poor culture fit. You can usually determine this in a 15 minute phone screen.
-Poor functional fit. You can remove the worst candidates in a 15 minute phone screen.
-Not actually interested in your startup. They will often let you know if this is the case in a quick phone call.

4. Closing.
Once you have put in all the effort to identify a great candidate, you should focus on the closing process. In some cases this is easy - the candidate really wants to join your company, you have agreed on compensation, they give notice and join. In other cases this can be a protracted back and forth due to compensation discussions, multiple offers to the candidate, life issues, or a last minute counter from their existing employer .

Some key aspects to closing include:
-If things start to drag out, set a deadline on both sides to come to agreement or move on.
-Make sure to spend the right amount of team time with the candidate. This is a balance of letting everyone get to know each other & selling the candidate, along with not taking up too much time the team could be spending on e.g. building product.
-If the candidate announces they are leaving to their existing employer and team it is a good sign. Once the word is out, they are more likely to join. I have seen multiple people back out of a job once they have accepted. You can not count on anyone joining until they show up on their first day.

People tend to confuse a VC with a good investment record with someone who can actually help startups. In both cases, these people are called "good VCs", although in the former case they may be quite terrible for a startup to work with.

This confusion was recently re-enforced in a PandoDaily post where a good VC is defined as someone who gets to invest in hot companies. E.g. "Those companies have their picks of investors. Clearly these non-founder VCs are doing something right."

The ability to convince an entrepreneur to let you invest, or access to invest in a startup, does not mean the VC is actually helpful to the company. A number of name brand investors are eventually viewed as pretty useless by the entrepreneur once she has had a few board meetings with them. In some cases, name brand investors can be actively destructive.

The basis for this confusion is that the venture industry is a bundled product. Right now VCs provide a bundle of capital (investment), advice (helping the startup), and governance (taking a board seat). The best investors return-wise aren't necessarily the best advisors (although a subset are), and some of the best VCs return-wise act badly from a governance perspective. People tend to confuse a VC picking a great startup, with the VC being somehow responsible for the company's success. A number of startups I know have succeeded despite their investors.

The venture capital bundled service includes:

0. Capital/investment.
Some of the very best investors in terms of dollars returned are also really great advisors. For example, Peter Fenton is known for working hard for his companies, and also has made some pretty spectacular investments. Reid Hoffman similarly was one of the angels in my first company, and was always incredibly helpful to talk to. Vinod Khosla is known for pushing the thinking of entrepreneurs.

However, many brand name VCs are actually not super helpful to the startups they invest in. Rather, they are able to pick the right startups to invest in, and attract entrepreneurs to work with them, despite being poor advisors. They tend to attract entrepreneurs as follows:Branding. This could be through PR, speaking events, blogging, or having chosen great companies in the past to invest in.Access. Top tier firms tend to see all the key companies for investment, so even a mediocre person at a great firm can have better access to invest then a great person at a mediocre firm.Ability to see the future. Some people are very good at spotting the future and investing in it. This does not mean they give good advice, however they can be very smart about investing.

These investors tend to have truly outsized returns. They end up with multiple big hits in their portfolio and make tons of money for themselves and their LPs. People tend to confuse the ability to pick a good startup with causing its success. Once a startup has product/market fit and is working, it is often quite hard to derail it. Some terrible advisors have done really well as investors by betting on startups that largely ignored their advice.

1. Advice (Versus ROI).
Even if you have have the most amazing, helpful comments as an investor, if you are at a lower tier firm you may never have the chance to invest in a break out startup with a dozen funding offers. Without branding and access it may not matter how smart or helpful you are. Alternatively, some investors with poor financial returns give great advice to companies, they just tend to pick the wrong companies to give their money and advice to. Unfortunately, bad company + good advice = bad company. Similarly, good company + bad advice = good company more often then not (since, as a good company, they either ignore the bad advice, or they have so much traction the bad advice does not derail them).

Reasons great advisors are not always great investors:Lack of access. Some thoughtful, helpful people do not have the brand name or access to investment that their less useful brethren may have. This may be a branding/PR issue, being at a third tier firm, or a lack of prior investment success.Lack of hustle. Not pursuing an investment opportunity aggressively. This can be most impactful if a startup is clearly working and everyone wants to invest in it.Bad judgement. One well known investor, and former operator, once told me the secret that transformed him from a terrible investor to a great one. His view was that he used to look at startups as a strong operator and see all the potential of the idea. He would get excited about the product area and all the great things it could do. As an operator, he would imagine how *he* would tackle the market. This is usually when he made terrible investments. Instead, he started to ask "what will this specific team and entrepreneur do with the idea". This allowed him to focus on founder/market fit and improved his return from investments dramatically.

2. Governance/board.
VCs traditionally asked for board seats to both look after their investment, as well as to have a seat at the table to give advice and make decisions (such as choosing the CEO). As part of their role on the board, investors ultimately are looking out for their own LP interests, but should also optimize for what is globally right for the shareholder base of the whole company.

A lot of the traditional conflicts between investors and entrepreneurs tend to happen at the governance level. Sometimes it is through self serving advice the VCs give, sometimes it is outright action by the VCs that leads to a poor outcome for the company (e.g. splitting founder cohesion and causing internal battles between founders is one example I have seen).

Some investors can make poor decisions when it comes to broader corporate governance. They may invite other members of their firm unasked to board meetings to "gang up" on the entrepreneur, or be willing to leak information to the press to endear themselves to bloggers. As an entrepreneur, once you have taken a VCs capital, you are often stuck with their governance as well. You should reference check your board members thoroughly.

Is Venture Capital Going To Get Unbundled?
For late stage investing, Yuri Milner effectively unbundled capital (he invested large amounts) and governance (he has not typically taken board seats). Will a similar set of investors emerge for early stage companies?

So far, early stage investing has only partially unbundled for the following reasons:a. Early stage companies tend to look for investors who can help. Entrepreneurs explicitly want investors who can also advise. Some entrepreneurs are willing to lower their effective price / market cap for helpful investors. The entrepreneurial market will demand the ongoing bundling of at least some capital and advice. The alternative would be to raise capital from "dumb money" and then add advisors who earn equity in a company. However, a fundraising process is time intensive enough that ongoing bundling makes sense for the entrepreneur efficiency-wise. Why spend a lot of time searching for both capital & advice when you can save time by getting both through one investor?

b. Branding. Some investors are really great at marketing themselves. Irrespective of helpfulness, they can still invest in great companies. This will prevent full capital unbundling.

c. Contrarianism. Amazing investments are not always obvious and some of the best companies do not always have great funding options early on. So, great companies may get saddled with poor investors due to a lack of choice early on. It is only later, when things are very clearly working, that the startup may have more choice on who to work with. At this point it is hard to remove poorly functioning investor board members.

Monday, July 28, 2014

I have worked on multiple consumer products at Google (mobile maps, mobile gmail, etc.) and Twitter. One of the key things you learn when building a consumer product is to make things as easy, streamlined, and friction free as possible for your users. When asking an angel, advisor, or other person to make an introduction for you, the same rule applies. The structure below saves a lot of pain & back and forth for you, as well as for the person being asked to make an introduction on your behalf.

The issue with this request is a few fold:
1. If Sarah forwards the email as is, Marc Andreessen is likely to either ask her for more details or ignore the request. After all, he is really busy, no context has been given, and there is no explanation as to why Marc would ever want to meet with Julie.

2. Julie is putting all the work on Sarah. If Sarah wants to see the intro through, she will now need to write a bunch of background on behalf of Julie as Julie was too lazy or thoughtless to do it herself. Even worse, Sarah may not have full context on what Julie really wants, or her background. This all decreases the likelihood Sarah either forwards the note, or if she writes it herself that Marc Andreessen replies. Finally, the email subject line has not been tailored for Marc to want to open it (unless he thinks he is being invested to a pub crawl, in which case it might work very well indeed). It looks like Julie just replied to the last email she had with Sarah versus starting a new thread.

Good Introduction Request:
"Subject: Andreessen / Drone & Bitcoin / MIT [1]
Hi Sarah,
Good to see you yesterday[2]. As discussed I am working on a drone-based bitcoin mining pool. I have pulled together a team of 5 MIT engineers [3] and I used to run both the bitcoin algorithms and drone design clubs at MIT [3]. I had previously co-founded BTCommunity, the world's largest bitcoin forum [3].

Given Andreessen's funds investments in Coinbase and Airware[4], I was hoping to get feedback on our go-to-market model[5]. I may also be able to provide introductions to Marc to other new bitcoin-focused companies as I know most of the founders in the market due to BTCommunity[6].

Regards,
Julie"

Why is this a good email?
Overall:
It is easy to forward by Sarah without Sarah having to do any work. The subject line is written with an eye towards email open rates. So, this is a low friction email to forward on, as well as low friction for the recipient to open and read.

Specifics:
[1] Subject line will catch Marc Andreessen's attention and summarize what the email is about. This increases open rate of the email.
[2] Social proof inserted - Sarah met with Julie live. Since Marc respects Sarah, if she is making time for it maybe it is worth his time too.
[3] Background and social proof on Julie - Julie is someone worth meeting and an expert in her area.
[4] Julie actually did research on Marc, and has a real, specific reason to think he might be interested. She did her homework and is not going to waste his time to "just network".
[5] A specific ask / reason to Marc is stated. This allows Marc to accept or decline based on whether it makes sense to meet and may save Julie time as well (e.g. if Marc does not care about bitcoin anymore).
[6] It is probably worth Marc's while to meet with Julie with an eye to a longer term relationship. She may actual be a valuable person in his network versus someone who just wants to meet someone famous.

By spending a little bit of time up front you can make life dramatically easier for the person doing you a favor / offering an introduction. It also increases the likelihood dramatically that an introduction will actually occur and yield a follow-on conversation.

Saturday, July 26, 2014

When hiring a candidate, there are some clear signs when they aren't really interested in your company (or in leaving their current job). If this is the case, I would suggest dropping them and focusing on potential hires more likely to join. As a founder, you only have so much time and should not be wasting it on people who are not engaged.

Signs a candidate just isn't that into your startup:

1. Won't talk to you during the work day.
If they are unwilling to make time for even a 15 minute phone call during the week day, they are not serious about switching roles or considering something new. Don't waste your time on candidates who give you very specialized windows to talk (e.g. "I can only talk to you between 9pm to 9:15pm on Sunday night in 3 weeks").

2. Keeps stalling.
You make them an offer, and suddenly they can't make the decision to join or not. Weeks pass. There is always "one more thing" they need to figure out or look into. Often they are just not that excited to join you and are interviewing elsewhere. They are using you as a backup option or for leverage with other companies You should give them a deadline to decide and then move on.

3. Talks about "just wanting to ship this one thing in 4 months, so lets connect again in a quarter".
It is code for "I am misleading myself and you on whether I really want to do something new. I am emotionally committed to my current gig. Every few months I will find a new reason to stick around for a few more months while deluding myself on my interest in actually leaving". Initially you should keep pinging them via email or phone every few months just in case, but if this happens 2 or 3 times in a row, it is clear they are deluding either you or themselves. If you are talking to a Googler, this means they are unlikely to leave the company for the next 5 or 6 years.

4. Is starting a company themselves.
I accidentally tried to recruit one of the co-founders of GitHub to my last startup (I misread his LinkedIn and thought he was just a poweruser - woops). Obviously, he didn't join (very smart choice).

5. Keeps agreeing to meet, but never want to actually interview.
The candidate is happy to come by your offices to meet the team, head out to lunch, hang out with folks, but never actually formally interview. Having them come in for endless meet and greats just wastes your teams time. Unless they are willing to go under the gun and get asked hard technical questions, they just aren't that into your startup.